China Steals World's Second Largest Economy Title from Japan

China surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s three- decade rise from Communist isolation to emerging superpower.

Japan ’s nominal gross domestic product for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said today. Japan remained bigger in the first half of 2010, the government agency said. Japan’s annual GDP is $5.07 trillion, while China’s is more than $4.9 trillion, Bloomberg informs.

China relaxed its strict communist economic policies after the pain caused by the Great Leap Forward – Mao's attempt to modernise China, which resulted in millions of deaths and derailed its economy for many years. This prompted the first wave of foreign investment into the country, since when the Chinese authorities have repeatedly intervened to rein in growth and battle inflation.

There have been problems – China's stock market crashed in 2008 after a speculative boom turned sour. Some analysts now believe that the country is about to suffer a property crash that will hurt its banking sector. Hedge fund manager Jim Chanos warned in April that the Chinese real estate bubble might burst later this year or in 2011. Construction is a major part of China's economy, and a property slowdown – or worse could knock its economic growth, The Guardian says.

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